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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ________________ TO ________________
COMMISSION FILE NUMBER:
0-25834
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EASCO, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 94-3157362
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) identification no.)
706 SOUTH STATE STREET, GIRARD, OHIO
(Address of principal executive office)
44420
(Zip Code)
(330) 545-4311
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
-- --
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
CLASS OUTSTANDING AT MAY 13, 1997
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Common Stock, $0.01 Par Value 10,409,670
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INDEX
<TABLE>
<CAPTION>
PAGE
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PART I FINANCIAL INFORMATION
<S> <C>
Item 1 - Financial Statements
Consolidated Balance Sheets as of March 31, 1997 and December 31, 1996 .................2
Consolidated Statements of Operations for the three months ended
March 31, 1997 and March 30, 1996....................................................3
Consolidated Statements of Cash Flows for the three months ended March 31,
1997 and March 30, 1996..............................................................4
Notes to Consolidated Financial Statements............................................5-6
Item 2 - Management's Discussion and Analysis of Financial Condition and Results of
Operations.............................................................................7-9
Signature.................................................................................10
</TABLE>
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ITEM 1 - FINANCIAL INFORMATION
EASCO, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
ASSETS
MARCH 31, DECEMBER 31,
1997 1996
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<S> <C> <C>
CURRENT ASSETS:
Cash and equivalents .................................... $ 14,873 $ 13,245
Receivables, less allowance for doubtful accounts ....... 42,898 40,802
Inventories ............................................. 27,999 27,143
Other current assets .................................... 4,113 6,592
--------- ---------
Total current assets ........................ 89,883 87,782
--------- ---------
PROPERTY, PLANT AND EQUIPMENT - NET ........................ 79,471 79,661
GOODWILL, net of accumulated amortization .................. 54,375 54,754
OTHER ASSETS ............................................... 7,345 8,260
--------- ---------
Total Assets ............................................ $ 231,074 $ 230,457
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable, accruals and other current
liabilities ............................................. $ 48,032 $ 46,806
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Total current liabilities ................... 48,032 46,806
--------- ---------
LONG-TERM DEBT ............................................. 85,000 85,000
DEFERRED INCOME TAXES ...................................... 13,439 13,444
OTHER NONCURRENT LIABILITIES ............................... 21,609 22,166
--------- ---------
Total liabilities ....................................... 168,080 167,416
--------- ---------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred Stock, $.01 par value, authorized
1,000,000 shares; none issued and outstanding -- --
Common Stock, $.01 par value, authorized
40,000,000 shares; 12,414,892 issued and
outstanding ................................. 124 124
Paid-in capital ......................................... 81,433 81,373
Retained earnings ....................................... 1,427 1,534
Less: Treasury Stock: 2,005,222 shares .................. (19,990) (19,990)
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Total stockholders' equity .................. 62,994 63,041
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Total Liabilities and Stockholders' Equity .. $ 231,074 $ 230,457
========= =========
</TABLE>
Amounts shown are unaudited
The accompanying notes to consolidated financial statements
are an integral part of this statement.
2
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EASCO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(To thousands, except share per share data)
<TABLE>
<CAPTION>
Three Months Ended
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March 31, March 30,
1997 1996
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<S> <C> <C>
Net sales:
Product sales .................................... $ 64,493 $ 64,025
Tolling fees ..................................... 15,505 15,844
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79,998 79,869
Cost of products sold ............................... 69,140 65,052
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Gross profit .................................. 10,858 14,817
Selling, general and administrative ................. 8,060 7,855
Amortization of goodwill and other .................. 414 507
Management fee ...................................... 225 225
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Operating profit .............................. 2,159 6,230
Interest expense .................................... 2,164 2,273
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(Loss) income before Income tax ............... (5) 3,957
Income tax (benefit) provision ...................... (2) 1,741
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Net (loss) income ............................. $ (3) $ 2 ,216
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Earnings per common share ........................... $ 0.00 $ 0.22
========== ==========
Weighted average number of common shares outstanding 10,409,670 1O,243,l44
========== ==========
</TABLE>
Amounts shown are unaudited.
The accompanying notes to consolidated financial statements
are an integral part of this statement.
3
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EASCO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
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MARCH 31, MARCH 30,
1997 1996
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<S> <C> <C>
CASH FLOWS FROM (FOR) OPERATING ACTIVITIES:
Net (loss) income ....................................... $ (3) $ 2,216
Adjustments to reconcile net (loss) income to net cash
flows from (for) operating activities:
Depreciation ........................................ 1,788 1,820
Amortization of goodwill and other intangibles ...... 414 507
Amortization of deferred debt issue costs ........... 143 143
Stock compensation expense .......................... 60 --
Changes in operating assets and liabilities:
Increase in receivables ......................... (2,096) (6,242)
(Increase) decrease in inventories .............. (856) 4,741
Decrease (increase) in other current assets ..... 2,350 (960)
Decrease (increase) in other assets ............. 737 (114)
Increase (decrease) in accounts payable, accruals
and other current liabilities ........... 1,226 (7,857)
Increase in deferred taxes (net) ................ 124 203
Decrease in other noncurrent liabilities ........ (557) (56)
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Net cash from (for) operating activities 3,330 (5,599)
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CASH FLOWS (FOR) INVESTING ACTIVITIES:
Property additions (net) ............................ (1,598) (2,546)
-------- -------
Net cash for investing activities ....... (1,598) (2,546)
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CASH FLOWS FROM (FOR) FINANCING ACTIVITIES:
Cash dividends paid ................................. (104) (102)
Increase in revolving credit loans .................. -- 1,500
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Net cash (for) from financing activities (104) 1,398
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CASH AND EQUIVALENTS:
Net increase (decrease) for the period .............. 1,628 (6,747)
Balance, beginning of period ........................ 13,245 7,670
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Balance, end of period .............................. $ 14,873 $ 923
======== =======
</TABLE>
4
Amounts shown are unaudited
The accompanying notes to financial statements
are an integral part of this statement.
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EASCO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three Months Ended March 31, 1997 and March 30, 1996
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements include
the accounts of Easco, Inc. (the "Company") and its wholly-owned subsidiary
Easco Corporation ("Easco") and Easco's wholly-owned subsidiary, Dolton Aluminum
Company, Inc. ("Dolton"). These financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
statements and accordingly do not include all of the information and disclosures
generally required for complete financial statements. In the opinion of
management, all adjustments considered necessary for a fair presentation have
been made. Beginning in 1997 the Company changed to the calendar month method
for reporting interim financial results. Previously the Company reported its
results on four thirteen week quarters. The change did not have a significant
impact on comparability for the periods presented.
Certain amounts in the 1996 financial statements have been reclassified
to conform to the 1997 presentation.
The Financial Accounting Standards Board has issued Statement No. 128
"Earnings Per Share." FAS No. 128 is effective for financial statements issued
for periods ending after December 15, 1997. This pronouncement will be
implemented in the Company's report on Form 10-K for the year ended December 31,
1997. The Company does not expect that this will have a material effect on the
earnings per share computation.
2. INVENTORIES
At March 31, 1997 and December 31, 1996, inventories consist of:
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
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<S> <C> <C>
Raw materials ................................... $9,009 $3,090
Work-in-process ................................. 8,239 11,668
Finished goods .................................. 10,751 12,245
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Total........................................ $27,999 $27,143
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</TABLE>
Inventories are valued at the lower of cost or market, with cost
determined using the last-in, first-out (LIFO) method. If the first-in,
first-out (FIFO) method had been used, inventories would have been approximately
$1.3 million greater at March 31, 1997 and approximately equal to the FIFO value
at December 31, 1996.
3. CONTINGENCIES
Litigation
Lawsuits and claims are filed from time to time against the Company in
the ordinary course of business. Management of the Company, after reviewing
developments to date with legal counsel, is of the opinion that the outcome of
such matters will not have a material adverse effect on the Company's financial
condition, results of operations or liquidity.
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Environmental Matters
The Company is subject to a wide variety of environmental laws which
continue to be adopted and amended. While the ultimate extent of the Company's
liability for pending or potential fines, penalties, remedial costs, claims and
litigation relating to environmental laws and health and safety matters and
future capital expenditures that may be associated with environmental laws
cannot be determined at this time, management annually assesses the Company's
environmental contingencies. Based on management's most recent assessment, the
Company has recorded a reserve of $9.2 million at March 31, 1997, representing
the Company's best estimate of costs of remedial action as well as any related
legal and consulting work.
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ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
BASIS OF PRESENTATION
The following table sets forth, for the periods shown, certain of the
Company's performance statistics. For the reasons discussed below management
focuses on pounds shipped, gross profit per pound and Adjusted EBITDA per pound
as important measures of the Company's performance.
<TABLE>
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THREE MONTHS ENDED
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MARCH 31, MARCH 30,
1997 1996
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(AMOUNTS IN MILLIONS, EXCEPT PER POUND DATA)
<S> <C> <C>
Net sales............................................................ $80.0 $79.9
Gross profit......................................................... 10.9 14.8
Operating profit..................................................... 2.2 6.2
Net income (loss).................................................... 0.0 2.2
====== ======
Pounds shipped:
Company-owned material....................................... 49.6 47.1
Customer Conversion Program ................................. 28.1 28.7
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Total pounds shipped................................................. 77.7 75.8
====== ======
Other performance measures:
Operating profit .................................................... $2.2 $6.2
Non-cash charges:
Depreciation and amortization ............................... 2.2 2.4
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Adjusted EBITDA ..................................................... $4.4 $8.6
====== ======
Gross profit per pound .............................................. $0.140 $0.195
Adjusted EBITDA per pound ........................................... 0.057 0.101
Average market price of aluminum per pound .......................... 0.780 0.757
</TABLE>
Pounds Shipped. Pounds shipped includes the weight of all aluminum and vinyl
extrusions shipped, including shipments to customers under the Company's
Customer Conversion Program (described below). Because aluminum price
fluctuations and the relative prevalence of sales under the Company's Customer
Conversion Program and other aluminum price fluctuation management programs
affect reported net sales but generally have no material effect on the overall
level of long-term profitability, management believes that pounds shipped is the
most important indicator of overall business activity for the Company and the
aluminum extrusion industry as a whole. The Company's volume, measured in pounds
shipped, directly impacts profitability due in part to the Company's fixed
costs.
Performance Measures. Management believes that the Company's ability to control
other variable costs (such as scrap reprocessing costs, delivery costs, and
labor costs relative to productivity) is a significant determinant of
profitability. As a result, in an effort to control variable costs, management
measures variable cost performance levels on a per pound basis. Management
believes the Company's gross profit per pound and Adjusted EBITDA per pound are
the best financial indicators of the Company's performance.
Aluminum Price Fluctuation Management Programs. Under its Customer Conversion
Program, the Company's customers supply aluminum directly to the Company, and
the Company converts this aluminum into finished product for an agreed tolling
charge. Accordingly, neither net sales nor cost of products sold reflect the raw
material cost for these sales, and depending upon the degree to which aluminum
is customer-supplied, net sales and cost of products sold will fluctuate without
regard to underlying business activity. This program and other fixed-spread or
hedged fixed-price arrangements with customers were utilized for
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over 60% of the Company's shipments in 1996 and the first quarter of 1997.
Combined with the Company's turnover of its aluminum inventory, these programs
serve to minimize the impact of aluminum price changes on the Company.
RESULTS OF OPERATIONS
QUARTER ENDED MARCH 31, 1997 COMPARED TO QUARTER ENDED MARCH 30, 1996
Pounds shipped during the first quarter of 1997 increased to 77.7
million from 75.8 million in the first quarter of 1996, representing an increase
of 2.5%. This increase is principally a result of higher shipments to the
transportation industry, particularly manufacturers of recreational vehicles and
trailers, offset in-part by reduced shipments to the consumer durables and truck
trailer market sectors. Net sales were essentially unchanged compared to the
first quarter of 1996, as per pound selling prices declined slightly.
Gross profit was $10.9 million in the first quarter of 1997 compared
to $14.8 million in the first quarter of 1996, a decrease of $3.9 million or
26.4%. This decrease is primarily the result of a narrowing of the spread
between selling prices and raw materials costs and to a less favorable sales
product mix, particularly at the Company's Dolton, Illinois plant. As a result,
gross profit per pound in the three month period ended March 31, 1997 was $0.140
compared to $0.195 in the three months ended March 30, 1996.
Selling, general and administrative expenses increased by 2.6%
during the first quarter of 1997 compared to the first quarter of 1996. This
increase was primarily due to additional compensation expense in the 1997
period. On a per pound basis, overall selling, general and administrative
expenses were unchanged at $0.104.
Operating profit decreased to $2.2 million for the quarter from
$6.2 million in the same period last year. The decline was primarily the result
of the factors described above.
Interest expense decreased $109,000 in the first quarter of 1997
compared to the same period last year due to reduced borrowings under the
Company's revolving credit facility.
Income tax benefit for the quarter ended March 31, 1997 was $2,000
compared to an income tax provision of $1.7 million for the quarter ended March
31, 1996. This difference was due primarily to the reduction in pre-tax income
between the two periods. The Company's effective tax rate differs from the
federal statutory rate due to state and local income taxes and non-deductible
goodwill amortization.
Net loss for the three months ended March 31, 1997 was $3,000
compared to $2.2 million of net income for the same period in 1996 primarily as
a result of decreased operating income, offset in-part by decreased interest
expense.
Adjusted EBITDA, which represents operating profit adjusted for
non-cash items and non-recurring or unusual items if any, decreased 48.8% from
$8.6 million in 1996 to $4.4 million in 1997 for the reasons set forth above.
FINANCIAL CONDITION; LIQUIDITY AND CAPITAL RESOURCES
Working capital at March 31, 1997 was $41.9 million compared to
$41.0 million at December 31, 1996. This increase is principally the result of
increased accounts receivable due to higher shipments in the first quarter of
1997 in comparison to the fourth quarter of 1996, offset by higher accounts
payable relating to an increase in raw materials costs.
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Capital expenditures totaled $1.6 million for the first three months
of 1997 compared to $2.6 million in the first three months of 1996. The Company
intends to incur capital spending during 1997, including state-of-the-art
casting programs at Dolton, at a level of between $7.0 million and $9.0 million,
for the year.
Long-term debt consisted of $85.0 million of 10% Senior Notes, due
2001 at March 31, 1997 and December 31, 1996. The Company has no scheduled
principal amortization requirements with respect to any of its debt until 2000.
RISK MANAGEMENT
The Company enters into forward fixed price arrangements with
certain of its customers. The Company may enter into fixed price aluminum
purchase agreements which correspond to the duration and timing of sales
agreements in order to reduce the risk of fluctuations in aluminum prices. The
Company is exposed to losses in the event of non-performance by the
counterparties to these agreements; however, the Company does not anticipate
non-performance by the counterparties. In addition, the Company may use aluminum
futures contracts to protect against exposure to aluminum price risk. As of
March 31, 1997, the Company had no open aluminum futures positions.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
EASCO, INC.
May 13, 1997 /s/ Terry D. Smith
--------------------------------
Terry D. Smith
Executive Vice President and Chief Financial Officer
Secretary and Treasurer
(PrincipalAccounting Officer duly authorized
to sign on behalf of the Registrant)
10
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 14,873
<SECURITIES> 0
<RECEIVABLES> 45,602
<ALLOWANCES> 2,704
<INVENTORY> 27,989
<CURRENT-ASSETS> 4,113
<PP&E> 104,306
<DEPRECIATION> 24,835
<TOTAL-ASSETS> 231,074
<CURRENT-LIABILITIES> 48,032
<BONDS> 85,000
<COMMON> 124
0
0
<OTHER-SE> 62,870
<TOTAL-LIABILITY-AND-EQUITY> 231,074
<SALES> 79,999
<TOTAL-REVENUES> 79,999
<CGS> 69,140
<TOTAL-COSTS> 69,140
<OTHER-EXPENSES> 8,473
<LOSS-PROVISION> 226
<INTEREST-EXPENSE> 2,164
<INCOME-PRETAX> (5)
<INCOME-TAX> (2)
<INCOME-CONTINUING> (3)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3)
<EPS-PRIMARY> 0.00
<EPS-DILUTED> 0.00
</TABLE>
